Although we review de novo,(1)
many of the facts material to our review are undisputed.� The parties were
married in 1990, and, at the time of the dissolution, in 2007, husband was 38
and wife was 40.� The couple had four children, ages 15, 13, 5, and 3.� Wife
has not worked outside the home since graduating from college in 1993.

Husband is the owner of a very
successful chiropractic business in Prineville, Paul J. Slater, DC, PC, dba
Slater Chiropractic, which is organized as an S corporation.� Husband purchased
the business in 1996 for $157,500, which included payments of $37,000 for
goodwill and the previous owner's patient list and another $75,000 for the
previous owner's execution of a noncompetition covenant.

In 2001, Slater Chiropractic
generated $446,367 in revenue, which thereafter increased every year to
$633,536 in revenue in 2006.� The revenues from Slater Chiropractic are
substantially above the national average for chiropractic offices, which is
less than $250,000 annually.� In 2006, husband's gross income from Slater Chiropractic
was approximately $25,000 a month.� However, a short time before trial, husband
underwent back surgery and was expected to be in recovery and unable to work
for three to six months.� Husband had written a letter to his patients
encouraging them to seek treatment from an employee associate chiropractor, Dr.
Miller, in his absence.

About 60 percent of Slater
Chiropractic's business comes through insurance, including husband's contract
as a "preferred provider" with a health insurance company that covers
local government employees.� Slater Chiropractic also attracts business through
word-of-mouth, referrals, and by advertising in the Yellow Pages.� Husband,
through Slater Chiropractic, is also actively engaged in the Prineville
community, and wife contributed to that involvement during their marriage.

Slater Chiropractic employs a
receptionist, three chiropractic assistants, and, since 2006, the associate
chiropractor, Dr. Miller.� As part of his employment agreement, Dr. Miller
executed a noncompetition covenant with Slater Chiropractic for five years.�
Husband, in contrast, does not work under an employment contract with Slater
Chiropractic and has not entered into a noncompetition covenant with the
business.� Husband testified that he "plan[s] to work in the chiropractic
profession in Prineville until I retire" and that, were he to sell his
practice "at [his] current stage of life," he would "[a]bsolutely"
refuse to enter into such a covenant.

Husband's expert, Holmer, used four
methods to value Slater Chiropractic.� The first, the adjusted book value
approach, valued the net tangible assets of Slater Chiropractic but not its
intangible assets, including goodwill value.� Pursuant to that method, husband's
expert concluded that the fair market value of Slater Chiropractic's net
tangible assets was $200,422.� Husband's expert relied on three other valuation
methods, viz., the capitalization of earnings approach and capitalization of excess earnings approach--which
both take into account the tangible and intangible assets of a business--and
the comparable transaction approach, which relied in part on a separate expert's
appraisal of the intangible asset value of Slater Chiropractic, to reach a
composite, total fair market value for Slater Chiropractic of $504,152.

Conversely, husband presented
evidence that the value of Slater Chiropractic's goodwill was $303,730.(5)�
Husband's expert further determined that 10 percent of that goodwill value
($30,373), based on the percentage of collected revenues, was attributable to Dr.
Miller's practiceand that the balance of the goodwill, $273,357, was
attributable to the "ongoing personal services of husband."� Because
Dr. Miller was an employee and had entered into a noncompetition covenant,
husband's expert determined that the value of Dr. Miller's goodwill was
properly included as an asset of the business.� However, in the expert's view,
the goodwill attributable to husband individually was not properly considered a
business asset.� Accordingly, in husband's view, for purposes of dissolution,
the total value of the chiropractic business was $230,795, i.e.,
$504,152 minus $273,357.

Related to their disagreement as to
whether goodwill was predominately or entirely a business asset of Slater
Chiropractic or was personal to husband, husband and wife also disagreed about
whether it was proper when valuing the business to assume that husband would
execute a noncompetition covenant.� Both experts agreed that, if husband were
to sell his practice, it would be necessary for him to enter into such an
agreement.� Wife's expert testified that, because a noncompetition covenant
would be required at the time of sale, it was proper to include the value of
such a covenant in calculating the fair market value of the business.�
Consistently with that premise, wife did not present evidence specifying how
much of the intangible asset value in Slater Chiropractic would be assignable
to a hypothetical noncompetition covenant.� However, wife's expert did testify
that, if Slater Chiropractic were sold without a noncompetition covenant
binding husband, the business would be valued at less than $610,000 because of
the risk that the new owner would receive the net tangible asset value of the
business but (with husband as a viable competitor) "would lose the revenue
stream that should go along with it"--and, in that event, its net asset
value ($160,902) "would be a floor" for that valuation.

During closing arguments before the
trial court, wife and husband defended the methodologies their respective
experts employed in valuing Slater Chiropractic--and, especially, as relevant
here, took issue with the other's treatment of goodwill value, particularly
with respect to the value of the putative noncompetition covenant.

On appeal, the parties generally
reprise the arguments they made before the trial court.� On de novo
review, we agree with husband that the trial court erred in predicating its
valuation of the business--and, particularly, its goodwill--on the assumption
that husband would execute a noncompetition covenant.� Accordingly, as
explained below, we remand with instructions for the trial court to modify the
property division.

At the outset, it is essential to
define the content of some predicate terms, including, especially, the meaning
of "goodwill"--a concept of chameleon capability.� Our cases have
generally defined "goodwill" to mean the value of a business "over
and above the value of its assets."� Maxwell and Maxwell, 128 Or
App 565, 568, 876 P2d 811 (1994).� See also, e.g., Weakley and
Weakley, 177 Or App 363, 368, 33 P3d 1045 (2001); Adams and Adams,
121 Or App 187, 190, 854 P2d 501 (1993); Goger and Goger, 27 Or App 729,
732, 557 P2d 46 (1976).� "Goodwill" is commonly understood to refer
to the

"'favor or advantage in the way of custom that a
business has acquired beyond the mere value of what it sells whether due to the
personality of those conducting it, the nature of its location, its reputation
for skill or promptitude or any other circumstance incidental to the business
and tending to make it permanent.' �Webster's Third New Int'l Dictionary,
979 (unabridged ed 1993)."

Weakley, 177 Or App at 368-69.� See alsoMcDuffy
and McDuffy, 184 Or App 359, 365, 56 P3d 449 (2002) (quoting Weakley);
Huang v. Department of Revenue, TC 4880, WL 2217751 at *3 (July 27, 2009)
(defining goodwill as "the value of a business above the value of its
physical assets"; "[t]hat value is attributable to such factors as
expected profits, business location, reputation for good service, and other
qualities that make the business attractive to individuals seeking its services").�
In sum, "goodwill" generally refers to those intangible assets of a
business, such as its relationships with suppliers, customers, and employees,
as well as its location, name recognition, and reputation, that engender
customer loyalty regardless of who works there.� See generally
Christopher A. Tiso, Present Positions on Professional Goodwill: �More Focus
or Simply More Hocus Pocus?, 20 J Am Acad Matrimonial L 51, 52 (2006).�
That definition generally comports with well-accepted accounting and economic
understandings of the term.� See Allen Parkman, The Treatment of
Professional Goodwill in Divorce Proceedings, 18 Fam LQ 213, 213-15 (1984).

The semantic and analytic confusion
is especially marked--both in our case law and in the case law of our sister
states--when it comes to assessing the goodwill of a professional practice or a
closely held business or corporation, specifically in determining whether a
principal owner's individual skills and qualities are properly included in that
valuation.� Compare Lankford and Lankford, 79 Or App 742, 746, 720 P2d 407
(1986) (holding that there was no goodwill in closely held corporation where "the
success or failure of the business depend[ed] on husband's personal services
and his ability to negotiate contracts"), with Reiling and Reiling,
66 Or App 284, 288, 673 P2d 1360 (1983), rev den, 296 Or 536 (1984)
(listing factors important for determining goodwill as "health,
professional reputation, skill, knowledge, work habits[,] and the nature and
duration of [the business]"); see also McReath v. McReath, 789 NW2d
89, 90 (Wis Ct App 2010) (observing that this area of law "has been hotly
debated in jurisdictions across the county for at least thirty years"
(internal quotation marks omitted)).

Nevertheless, aside from some
slippage at the margins, our cases, like those of the majority of courts that
have considered the issue, see Tiso, 20 J Am Acad Matrimonial L at 57-59
(describing case law), have generally distinguished between the intangible
income-producing assets of a business--that is, its "goodwill"--from
the value that inheres to the personal traits of that business's employees or
owners.� Indeed, the import of those decisions is that "personal goodwill"
is not, in fact, "goodwill" for purposes of valuation in the marital
dissolution context.� Our decisions in Lankford, Maxwell, McDuffy,
and Weakley are illustrative.

Lankford involved the
valuation of a logging business of which the husband was sole owner.� 79 Or App
at 744.� The wife contended that, as a going concern, the business had a value
of roughly $224,000.� Id. at 745. �Conversely, the husband presented
evidence that the business had no value aside from the value of the equipment
and that "there was generally no goodwill in such an operation unless the owner
personally promised his services to accompany the sale of the business."� Id.�
Further testimony clarified that, with respect to a logging operation, the
goodwill "wouldn't be worth, really anything because, * * * [t]he good job
that another operator has done wouldn't necessarily reflect that [a new owner]
would do the same job."� Id. (internal quotation marks omitted).�
The trial court ultimately valued the business at $90,000. �Id.

On appeal, the wife reiterated that
the husband's logging business should be valued as a "going concern"
and, thus, that the trial court erred in failing to account for the business's
goodwill.� Id.� We disagreed and held that, because the evidence on de
novo review established "that the success or failure of the business
depends on [the] husband's personal services and his ability to negotiate
contracts in a fluctuating and depressed market," the trial court
correctly determined the value of the business.� Id. at 746.

We reached similar conclusions in Maxwell
and McDuffy.� In Maxwell, we held that the trial court erred in
assigning a goodwill value to the husband's business, a sole proprietorship,
where the evidence established that the business's success was "completely
dependent on [the husband's] creative, personal services."� 128 Or App at
569.� Similarly, in McDuffy, we sustained the trial court's
determination that there was no goodwill in the trucking company awarded to the
husband, where the parties had agreed before the trial court that there was no
goodwill and the evidence established that the husband ran the business by
himself, there were no steady customers, and "if husband left the
business, there would be nothing left to the trucking company other than the
assets."� 184 Or App at 362-63, 365.

In contrast, in Weakley, we
determined that the trial court correctly rejected the husband's argument that
there was no goodwill value in the specialized logging company of which he was
part owner.� 177 Or App at 369.� Central to that determination was evidence
that the husband was not the sole shareholder or representative of the logging
business and that 50 percent of the company's business came from fixed
contracts, as opposed to bid contracts that go "to the lowest qualified
bidder, regardless of the bidder's reputation or experience."� Id. at
366. �Additionally, and significantly, there was "no evidence in the
record that [the company's] business [was] dependent on husband's personality
or reputation."� Id. at 369. �Thus, although the husband's expert
testified that he believed that there was no goodwill in the business, the
husband failed to present evidence that would substantiate that opinion.� Id.;
see also Adams, 121 Or App at 190-91 (upholding trial court's finding
that corporations, which relied substantially on the husband's personal
services for their profitability, had goodwill value).

Taken together, our cases demonstrate
that, for purposes of valuation in this context, cognizable "goodwill"
refers to the value of a business "over and above the value of its assets"
irrespective of the owner's or professional's continued "personal
services," Lankford, 79 Or App at 746, or "personality or
reputation," Weakley, 177 Or App at 369.� Accordingly, where a
business has no value above and beyond its assets absent "the owner
personally promis[ing] his [or her] services to accompany the sale of the
business," Lankford, 79 Or App at 745, there is no goodwill.� See
also McDuffy, 184 Or App at 363, 365.� At the same time, a closely held
business may have goodwill value where the "success or failure," Lankford,
79 Or App at 746, of that business does not rest entirely on the business owner's
personal services, personality, or reputation.� See Weakley, 177 Or App
at 369.

That understanding comports with the
view of the majority of state courts, many of which have reasoned that it is
improper to treat an individual principal's or professional's reputation as "goodwill"
or as a divisible marital asset because it is indistinguishable from that
individual's probable future earning capacity.� In other words, to the extent
that the enhanced earnings of a closely held business or professional practice
are due to an individual's skills, qualities, reputation, or continued
presence, those earnings are attributable to the individual, not to the
business entity.� See, e.g., Held v. Held, 912 So 2d 637, 639 (Fla
4th Dist Ct App 2005), rev den, 928 So 2d 335 (Fla 2006) (discussing
Florida cases holding that "personal goodwill represented a person's
probable future earning capacity"); Jay Myoung Yoon v. Sunsook Yoon,
711 NE2d 1265, 1269 (Ind 1999) (adopting the view that "'personal goodwill'
represents nothing more than the future earning capacity of the individual and
is not divisible"); Gaskill v. Robbins, 282 SW3d 306, 314 (Ky 2009)
(following Yoon).

Against that comprehensive backdrop,
we return to the precise question presented here:� Did the trial court err in
premising the value of husband's chiropractic business on the assumption that
husband would be bound by a noncompetition covenant?� Although no Oregon
appellate decision has addressed that question, courts in other jurisdictions
have.� Among those courts, there is a split of authority, with most having
concluded that, to the extent that a noncompetition covenant corresponds to the
business's future earning capacity attributable to an individual's skills,
qualities, reputation, or continued presence, the value of that covenant is not
cognizable in a marital property division.� See, e.g., Kricsfeld v.
Kricsfeld, 8 Neb App 1, 18, 588 NW2d 210, 221 (1999) (canvassing case law);
Marriage of Monaghan, 78 Wash App 918, 927, 899 P2d 841, 846 (1995)
(same); but see McReath, 789 NW2d at 100 (holding that salable
professional goodwill represented by a noncompetition covenant is a marital
asset).

We agree with the majority approach.�
When executed incident to a sale of a business, a noncompetition covenant
ensures that the former business owner will not take any customers or patients
with him or her and will not compete against the new business owner in the same
general area for a reasonable period of time.� The value of that covenant
depends, at least in part, on the ability of the covenantor to attract future
business based on his or her personal services and personality or reputation,
separate and apart from his or her association with the business.� As the
Nebraska Court of Appeals explained:

"The reasoning of the courts which have
excluded covenants not to compete from the value of a professional practice are
persuasive and consistent with the rationale * * * that any 'asset' that does
not have a value independent of the presence or reputation of a particular
individual is not a marital asset. * * * [T]he value of a typical covenant
prohibiting or restricting an individual from competing with another is, by
definition, dependent upon the presence or reputation of the individual who
gives the covenant.� For example, if an individual loses his or her license to
practice medicine, he or she ceases to be 'present' in a competitive sense.�
Consequently, it is unlikely that any value would be paid to that person for a
covenant not to compete, as he or she could not compete anyway.� To the extent
that the value of a covenant not to compete is solely dependent on the presence
or reputation of an individual, it is not a marital asset."

Kricsfeld, 8 Neb App at 18-19, 588 NW2d at 221-22.

Thus, the same rationale that
warrants exclusion of enhanced earnings uniquely referable to an individual's
or principal's skills, qualities, reputation, or continued presence from the
calculation of a business's goodwill, see, e.g., McDuffy, 184 Or
App at 363, 365; Maxwell, 128 Or App at 569; Lankford, 79 Or App at
746, also pertains to the treatment of the value of a putative noncompetition
covenant.� Both correspond, at least broadly, to a component of earnings
attributable to the individual, and not the entity, that the business would
lose if the individual withdrew from the business and, especially, opted to
compete.� In this context, each is a function of the individual's earning
capacity, with the value of the noncompetition covenant corresponding to the
present value of the forgone stream of future earnings.

The consequence of the foregoing is
that the valuation of Slater Chiropractic as a marital asset could not properly
be predicated on an assumption that, at the time of a putative sale, husband
would be bound by a noncompetition covenant, thus enhancing the value of the
business.� Or, stated conversely, any valuation of Slater Chiropractic so
predicated must concomitantly be reduced by the value of the putative
noncompetition covenant, corresponding to the value of enhanced earnings above
the business's tangible assets, which are attributable to husband's individual
skills, qualities, reputation, or continuing presence.

Here, wife made no attempt to present
a valuation of the business differentiating between enhanced earnings
attributable to the entity and enhanced earnings attributable to husband
individually.� Rather, wife's expert testified that none of the enhanced
value of Slater Chiropractic was attributable to husband personally and that
all of the business's value over and above its assets was divisible goodwill.�
Nonetheless, however, wife's expert agreed that, if husband were to sell his
business, it would be necessary for him to execute a noncompetition covenant.�
That acknowledgement is irreconcilable with the position that husband's
personal skills, services, and continued presence are immaterial to the
business's enhanced earnings.� If that were so, the assumption of a
noncompetition covenant would be inapposite to valuation.

Given those factors, on de novo
review, we adopt as reasonable husband's expert's calculation that $273,357 of
the value in the business was "personal" to husband.� We further
adopt husband's expert's total valuation of $504,152.� That, in turn, after
deduction of that component attributable to husband personally, yields an asset
value, for purposes of marital property division, of $230,795--and not $500,000,
as determined by the trial court.

In sum, we hold that the trial court
erred in including the value of a hypothetical noncompetition covenant when it
valued Slater Chiropractic and, consequently, erred in determining the value of
the business.� The difference between the trial court's valuation of the
business ($500,000) and our valuation on de novo review ($230,795) is
$269,205.� That difference requires a substantial reconfiguration of the trial
court's property division beyond a simple elimination of the equalizing
judgment ($78,524) in wife's favor.� We remand for the trial court to determine
a proper division consistently with this opinion.

Vacated and remanded for
reconsideration of property division; otherwise affirmed.

1.The
notice of appeal in this case was filed before June 4, 2009; accordingly, the
2009 amendments to ORS 19.415(3) (which give the appellate court discretion as
to whether it reviews facts de novo in most equity cases) do not apply,
and our standard of review is governed by the 2007 version of the statute.� See
Or Laws 2009, ch 231, � 3.

2.In
its letter opinion, the trial court found that wife's expert had attributed a
value of $570,000 to Slater Chiropractic, which was wife's expert's valuation
of Slater Chiropractic as of December 31, 2005.� However, wife's expert updated
his valuation for Slater Chiropractic in advance of trial to reflect its value
as of December 31, 2006, and relied on those updated figures in his testimony.

5.Husband's
expert reached that figure by subtracting the fair market value of the net
tangible assets, i.e., the adjusted book value of the business or
$200,422, from the composite value he calculated using capitalization of
earnings, capitalization of excess earnings, and comparable transaction
approaches, viz., $504,152.

9.To
further confuse matters, in the case of a professional practice, some courts
and commentators use the term "professional goodwill" to refer not to
the practice's entity-based goodwill, see ___ Or App at ___ (slip op at
10 n 8), but, instead, to the practice's enhanced earning capacity attributable
to the principal/professional's skills, efforts, personality, or reputation. �See,
e.g., McReath, 789 NW2d at 90 (distinguishing "corporate
goodwill" from "professional goodwill").

10.It
bears reiteration that both parties' expert witnesses employed, in part, a
capitalized excess earnings formula in their respective valuations.� However,
there is no evidence that Slater Chiropractic had any excess earnings, apart
from revenues attributable to Dr. Miller's practice, that were not attributable
to husband's skills, qualities, reputation, or continued presence.� Thus, that
valuation formula did not, itself, justify a finding that Slater Chiropractic
had goodwill value apart from any excess earnings attributable to Dr. Miller.� See
Maxwell, 128 Or App at 568-69 (holding that, where an expert's calculation
of the goodwill value of a spouse's business is based on a capitalization of
excess earnings theory, and the evidence shows that the success of the business
is completely dependent on the creative, personal services that the owner
spouse provides, the business has no goodwill value).